Ethics, finance, leadership & teamwork

Introduction to the Tragedy of the Commons

All professionals enjoy a privileged position in society. For example, licensing laws prohibit entry into professions such as medicine, law, or professional engineering. As a consequence, the people who DO have a license to practice can charge higher rates. Additionally, professionals often enjoy public subsidies — either reducing the cost of education or underwriting institutions that enable the practice (such as public hospitals, courts, research grants, or public works).

In return for this privileged standing, society places expectations on professionals. Most notably, professionals are expected to hold the social good above their own.

Individually, all professionals have an incentive to cheatsociety by cutting corners to reduce their own costs, abuse the power that expertise offers, or otherwise unfairly place their own interest ahead of others. For example, some doctors that own stock in pharmaceutical companies have been charged with preferentially (or unnecessarily) prescribing drugs produced by the companies they own, thereby increasing their own profits at the expense of patients and insurance companies.

However, in these cases it is clear that the abuses perpetrated by the individual will tarnish the reputation of the entire profession, placing the privilege enjoyed by the profession at risk. Thus, all profession have internal regulatory bodies that sanction those deviants that fail to ascribe to a code of conduct that protects both the public and the profession (as a whole).

The interaction between the individual professional and the group can be modeled as a problem in non-cooperative game theory. In this class of problems, individuals can unilaterally (i.e., without making agreements with others) advance their own position, but only at the expense of other individuals in the group. Alternatively, if all people in the group agree to cooperate, the entire group can be better off.

Without some sort of individual restraint of ambition or avarice, a group confronted with a non-cooperative game theoretic problem will either degenerate into a tragic catastrophe, or result in the savvy players making suckers out of the naive. The first six minutes of the Dark Knight movie (starring Heath Ledger as the Joker) illustrates this point. Notice how the Joker uses greed to turn the individual members of his gang against one another.

In fact, the entire plot of the Dark Knight movie revolves around the Joker setting up one non-cooperative game theoretic problem after another, just to see what might be revealed about the character of his victims.

The classic example of a non-cooperative game theoretic problem is The Prisoner’s Dilemma. In this video clip, Salman Khan explains the problem that two prisoners face when they are being interrogated separately by the police, and why the police are likely to get confessions.

A special type of game-theoretic problem involves managing common pool resources. In this case, every individual has an incentive to take more from the common resource, but if all individuals take too much, the resource will be ruined and everyone will suffer. This special case is called The Tragedy of the Commons.

Khan explains the problem in terms of public fisheries, but in Khan’s explanation, the individuals also have private ponds in which they can keep their own fish. In this case, private ownership changes the incentive structure such that owners will more carefully manage the resources and maintain the longevity of the fishery — which is also in the public interest.

However, privatization of some common pool resources, such as the atmosphere, is highly problematic. Elinor Ostrom points out that cooperation between individuals can exist despite the incentive to cheat and in the absence of a third party (meaning someone outside the group) enforcement. In these instances, groups typically institute their own mechanisms of enforcement.

Because some common pool resources (such as the atmosphere) are not amenable to privatization, Ostrom’s discovery of alternative mechanisms may be especially important to sustainability. However, recognition of game-theoretic problems significantly complicates moral analysis. Because the outcomes of an interesting game-theoretic problem depend on interaction between two or more players, where should the moral culpability for the tragedy reside?

In fact, doing the “right thing” in a non-cooperative game theoretic problem might actually encourage other players to do the wrong thing, by improving their payoffs. The converse is also true. Doing the wrong thing (that is, defecting or failing to cooperate), or at least the credible threat of the wrong thing, might actually turn out to be the only way to ensure that other players do the right thing, as this video from a popular British game show illustrates.